The major market indices bounced back on Monday, with investors doing a bit of bargain hunting following last week’s heavy losses. Overall, the Dow Jones Industrial Average, Nasdaq and the S&P 500 index all advanced more than 1.2%. The bounce drove heavy call activity on the CBOE, with the exchanges put/call volume ratio plunging to 0.53 — its lowest reading since Feb. 20. The 10-day moving average also slipped to a two-week low.
Most of Monday’s options activity appeared to be end-of-month positioning, with JPMorgan Chase & Co. (NYSE:JPM) making a rare appearance on the top ten most active options list as a result. Meanwhile, Facebook Inc (NASDAQ:FB) drew interest after being singled out by Jim Cramer, and BlackBerry Ltd (NASDAQ:BBRY) suffered after analysts weighed in over the weekend.
Facebook Inc (FB)
Citing the potential from Facebook’s acquisition of WhatsApp, Jim Cramer said on Monday that FB stock has considerable upside potential. “I am starting to think that WhatsApp, if it came public would be worth double of what Facebook paid for it …” Cramer said. He also noted that Facebook has integrated WhatsApp very quickly.
FB stock traded fractionally lower Monday, despite the overall bullish mood on Wall Street. Options traders weren’t deterred, however, with 67% of the 179,041 contracts in volume trading on the call side. Taking a closer look, we find that overhead call options are quite popular in the weekly April 2 series of options.
Among the most notable strikes are the April 2 $84 call, where 12,125 contracts are open, and the deeper-out-of-the-money April 2 $85 call, which sports open interest of 16,099 contracts.
If I had to speculate, I would be that call spread activity is taking place at these two weekly strikes, with traders betting on a rally north of $84 by the end of the week.
BlackBerry Ltd (BBRY)
It took a whole weekend to digest, but Wall Street has apparently decided that it wasn’t happy with BlackBerry’s recently quarterly earnings report. The stock was smacked nearly 7% lower on Monday, with bearish reports from JPMorgan and Deutsche Bank weighing heavily on BBRY shares. JPMorgan fretted over aggressive cost-cutting measures, while Deutsche Bank questioned the BBRY stock’s ability to command a higher price.
Despite the wave of bearish backlash, BBRY options traders were call heavy on Monday. With 98,233 contracts trading on the stock, 58% of this volume crossed on the call side. That said, BBRY’s put/call open interest ratio for the front two months ticked higher to 0.93 — a reading that is sharply higher than its mid-March low of 0.77.
In other words, while call volume remains high, open interest levels point toward call liquidation instead of call buying.
In premarket trading, BBRY is down another half-percent, placing shares at their lowest point since July.
JPMorgan Chase & Co. (JPM)
Shares of JPMorgan Chase were the largest gainers on the Dow heading into the close on Monday, with the stock adding 2.37%. The gains came on lower-than-average volume for the stock, but options activity reached short-term record levels as traders looked for better positions ahead of the end of March. Technical buying also may have been in the mix, as JPM stock bounced off support at its 200- and 50-day moving averages, which are poised for a bullish cross.
On the options front, volume swelled to 194,300 contracts, more than double JPM’s average daily trading volume. Of note was volume at the June $60 call strike, which saw roughly 70,000 contracts change hands. Open interest at this back-month strike now stands at 88,413 contracts and is home to peak open interest among options set to expire within the next three months.
In premarket trading, JPM stock is down fractionally and may be headed for a test of support in the $60 area today.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
